NEW YORK – Merck burned through nearly $300 million in 2005 defending itself against Vioxx-related lawsuits and shoring up its legal defenses against future cases, said CEO Richard Clark.

“The money spent to date [on Vioxx-related legal defense] has created a strong foundation for defense going forward,” said Clark on Tuesday, in a webcast for the company’s fourth quarter earnings.

Merck (up $0.13 to $34.59, Research) spent $285 million last year defending itself against the first three lawsuits that blamed Vioxx, an arthritis painkiller, for causing heart attacks: charges that Merck denies. These charges were taken from a reserve of $675 million that Merck established in 2004. The company pulled Vioxx, a $2.5 billion drug, from the market in September following a study that linked the drug to heart attacks and strokes in patients who took Vioxx for at least 18 months.

In the fourth quarter, 2005, Merck replenished the reserve with an infusion of $295 million, bringing it up to $685 million. This reserve covers only legal costs, not the payment of damages, and it should last through 2007, the company said.

“I want you to know this figure is only for Vioxx legal defense,” said Clark. The company has yet to pay damages, despite being hit with a $253 million claim in a Texas court in December. That award is likely to be whittled down to less than one-tenth that size.

Of the first three lawsuits, Merck has one win, one loss and one mistrial. This is just the beginning: Merck faces at least 9,650 Vioxx-related lawsuits, and vows to fight them all, one at a time.

Merck said that the Vioxx-related charge of $295 million is reflected in its earnings. Merck reported full-year 2005 earnings per share of $2.53. The company reaffirmed its 2006 EPS range of $2.28 to $2.36, excluding reconstruction charges.

The fourth Vioxx-related trial against Merck is underway in the Texas border town of Rio Grande City. The family of Leonel Garza, 71, has sued Merck in state court and blames Vioxx for Garza’s fatal heart attack in 2001.

On Feb. 6, jury selection begins in the retrial of Plunkett v. Merck, to be held in a federal district court in New Orleans under Judge Eldon Fallon. Fallon presided over the original trial, which ended with a hung jury on Dec. 13, 2005 in Houston. After being temporarily displaced to Texas by the ravages of Hurricane Katrina, Fallon intends to have all federal Vioxx cases tried in New Orleans.

Cost-cutting, Zocor, Singulair

The company is the process of belt-tightening and plans to slash 7,000 jobs, or 11 percent of its workforce, and close or sell five plants including two in the U.S., as well as two research facilities.

Merck said it cut 1,100 jobs in 2005 in the first wave of lay-offs.

Part of the company’s pain stems from the impending patent loss of Zocor. Sales for Zocor, a cholesterol-lowering statin and Merck’s top-selling drug, are in decline and the drug is expected to lose patent protection in June, 2006. Zocor sales in 2005 totaled $4.4 billion, a 16 percent plunge from the previous year, and the company blamed generic competition in Europe.

But this decline was offset by sales for asthma drug Singulair, which jumped 13 percent in 2005 to $3 billion, and sales from anti-hypertension drugs Cozaar and Hyzaar, rising 8 percent to $3 billion in 2005.

Merck could also get a revenue lift from Gardasil, its experimental vaccine to prevent cervical cancer. Merck submitted a Gardasil application to the Food and Drug Administration in December, 2005, and requested fast-track review status, which could shorten the review process to six months if granted.

Gardasil generated much excitement last year, after Merck unveiled a study in October showing 100 percent efficacy in preventing the sexually transmitted human papillomavirus, which causes 70 percent of cervical cancer cases. In December, Merck released another Gardasil study, showing 100 percent efficacy in preventing the sexually transmitted viruses that cause 90 percent of vaginal and vulvar lesions in young women, including genital warts.

Merck spent $3.8 billion on research and development in 2005, a 4 percent decline from the previous year. Judy Lewent, chief financial officer, said reconstruction-related costs were partly to blame for the decrease in R&D spending, but that Merck entered 44 licensing agreements in 2005 “to drive growth.” Lewent said that Merck is aggressively pursuing “acquisitions that meet the company’s strategic needs.”

Merck, based in Whitehouse Station, N.J., reported $22 billion in 2005 sales, with $4.6 billion in the fourth quarter. This is down from $22.9 billion in 2004 and $5.8 billion in the fourth quarter, 2004.

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